Beyond Savings: New Metrics for a Successful Procurement Function
Today's guest post is from independent procurement consultant Geoff Parsons. Geoff will be our guest at a webinar, “5 Metrics That a Successful Procurement Function Should Track,” presented in partnership with Procurement Leader, on Tuesday August 23, 2016 at 8 am PST. Here are some of his thoughts on the topic. Join us Tuesday to hear more.
When I think about some of the challenges that procurement has experienced over the last few years, the biggest ones include being viewed as trusted advisors, demonstrating that we can deliver value beyond savings, and elevating the overall function to a more strategic level.
Coming to procurement from consulting as I did, I’ve always taken the approach that the key to success in any organization is viewing procurement as a consulting arrangement. In that type of arrangement, you have to earn the respect and trust of your client. For procurement, that leads to building strong relationships with business stakeholders, understanding their needs and requirements, and getting the opportunity to offer meaningful, relevant support to help them on that journey.
Traditional procurement metrics don’t tell us how well we’re doing at building business relationships or how we are serving as consultants. Most organizations measure the success of the procurement organization with quantitative metrics around savings, contracts negotiated, categories influenced, and spend under management.
If we’re going to develop a different way of looking at the role and its relationship with the rest of the organization, we need a new set of qualitative metrics that speak to our effectiveness aligning with the goals and objectives of the rest of the business and bringing value to our clients. Only looking at our existing metrics is keeping us stuck in a transactional, customer service type role, rather than a client centered consulting role.
What’s the difference between a customer and a client? If you went to an urgent care clinic and saw the doctor on call, you would be treated, get a prescription or receive some other care for your immediate problem, and be sent home. That’s transactional customer service.
If you were to go to your regular doctor for treatment or medical advice, there’s a relationship there that has developed over time, built on trust and respect, with more historical context that allows the doctor to view you as a client and take a more consultative approach to your ailment with a view to your long-term health.
The real crux of why procurement has never been viewed as a strategic group within an organization is that it has been very much focused on highly transactional and customer service type activities that are designed to fulfill basic requests--largely because that’s what we are structured to measure. That’s not wrong, but it’s not enough, because being transactional is not enough, especially when there are so many more value added services and innovative activities that procurement can offer.
In most organizations, one of the biggest challenges to manage overall is the cost of operating the business so they can achieve acceptable margins. In the procurement space, we typically only manage within the cost envelope. We get a set of requirements from a customer. We then go to the market and source for that particular request. We negotiate a contract to provide the supplier that good or service and we hand it back to the person who requested it.
We might be able to put quantifiable metrics around what we did, but we don’t really know whether what we did was meaningful. That, in a lot of cases, is beyond the realm of cost savings.
There are many different ways to manage to margin that procurement could help with. It could be through policy. It could be through how you acquire goods or services. It could be through how you're going to offer various levels of service or grades of products at premium prices.
However, when we’re seen as transactional, we often don’t have the opportunity to bring any new ideas or information, or offer any different approaches for consideration. We complete the assignments we are given, probably without understanding the big picture.
Being a consultant is a completely different approach to providing value to the business.
It's really about being part of the conversation so you can add a supply chain perspective, help stakeholders be better informed about market conditions and available options, and what other cost drivers there might be besides price.
To escape from the purely transactional dynamic, we also need to work to qualitative metrics that tell us how well we’re doing with relationships, engagement, alignment, trust, and innovation. This is the kind of feedback a good consulting professional solicits from their clients.
These are harder to measure, but we have to get at how well we’re doing and where we need to improve. Are we part of the conversation about business strategy, or strictly viewed as somebody who's being handed a series of assignments to complete? Obviously there’s a big difference, and the ability to elevate the profession rests on being embraced as the former, and not dismissed as the latter.